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The Fat Lady Sang after Heller’s Mock Opera

Posted Jan 26, 2009 7:21 AM CDT
By Debra Cassens Weiss

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Heller Ehrman, once known for its laidback atmosphere and disdain for rewarding rainmaking partners, unraveled 18 months after a mock opera staged at a firm retreat highlighted conflicts over managers’ push to a business focus.

The March 2007 event featured professional opera singers and orchestra musicians and cost more than $200,000, a member of the firm’s executive committee told the Wall Street Journal (sub. req.). Lawyer David Goodwin recalls in an interview with the newspaper that his wife was taken aback by what she perceived to be the high cost of the performance. "This is a poorly managed firm. You need to leave," she told her husband. He followed her advice the following year as the firm was struggling to survive.

The Wall Street Journal article reports on the difficult time period, putting it in context of financial problems hitting many major law firms during Wall Street’s implosion. Law firm profits were down 8 percent to 12 percent last year. Two charts published by the newspaper help tell the story.

One chart by City Private Bank shows the growth in billable hours from 2001 to 2008. Before 2008, the worst year was 2002, when billable hours grew by a little less than 3 percent. In 2008, growth was almost flat. A chart with information from 74 law firms collected by Hildebrandt shows that litigation, which usually sees an uptick in hard economic times, grew by only 1 percent in 2008. Corporate work fell by 3.8 percent and mergers and acquisitions work declined by 2.5 percent.

Heller’s declining litigation business was part of its problem, the story says. Heller had relied on big-scale litigation, episodic work that put a strain on firm finances when cases ended. In the winter and spring of 2008, the firm lost about one-fourth of its litigation work after settlements in a Microsoft antitrust suit and Ernst & Young securities litigation. Some lawyers worried the downturn in such work wasn’t temporary. They thought mediation and corporate cost-cutting would put a permanent dent in the practice area. Lawyers began to leave the firm.

Firm managers wanted to retain partners and shore up profits, the story says. They fired partners they believed to be underperforming and began to pay rainmakers a greater share of profits. The firm’s managing partner, Robert Hubbell, produced a chart showing work hours were 15 percent lower on Fridays, a message that more work needed to be done on the last day of the week, according to the story. The move angered some lawyers.

Heller began to seek a merger partner. Talks with Baker & McKenzie ended because of client conflicts. And talks with Mayer Brown were unsuccessful after the firm’s high-profile team of intellectual property lawyers left. The move meant that the law firm’s loan agreement with the bank providing a credit line had been breached. The contract limited the number of partners who could leave within a year. At the same time, the firm was having trouble paying off its loan.

Partners voted to dissolve in September.

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